5 million iPhone package sale to China Unicom? Carrefour to be a key iPhone distribution partner?

Update – August 13, 2009: According to the Associated Press, China Unicom spokesman Yi Difei has denied the reports of an iPhone deal and large iPhone pre-purchase. Yi Difei stated “The report is not true.”… “There are all kinds of possibilities. There is no particular timetable for the talks.” Despite this denial, Zhou Fang, the CBN reporter who broke the story, discounts the China Unicom denial and noted that he had made audio recordings of the interviews with the Guangdong Unicom executives (Zhou Youmeng and Yu Zaonan) who spilled the beans.

Adding further legitimacy to the original CBN report is a post today on Interfax TMT and the news today from a Carrefour source. Chongqing Evening News, quoting a Carrefour employee, states that the iPhone in China deal is a go and Carrefour would indeed be part of the distribution plan. The report states that iPhones could be ready to go on sale as early as late August and that Carrefour stores in Guangzhou and other costal areas have begun preparing store displays.

August 11, 2009: According to an August 11 report in China’s CBN.com(China Business News), China Unicom has agreed to pre-purchase for inventory five million (5,000,000) special “for China” iPhones from Apple. The report states that China Unicom will pay Apple 10 billion CNY (USD $1,463 billion) or 2,000 CNY (USD $292.60) per unit, and that China Unicom will have a 3-year iPhone exclusive in China. CBN cites Guangdong Unicom’s Deputy General Manager Zhou Youmeng, as a prime source for this story.

Guangdong Unicom is a subsidiary of Beijing-based China Unicom. China Unicom’s subsidiaries are often quite independent and don’t always check with the parent in Beijing before launching marketing initiatives or speaking (leaking) to the media. Shanghai Unicom had their wrist slapped rather severely for comments to reporters re the rumored “iPhone deal” and for their publication of iPhone images on their subsidiary website back in March. It will be interesting to see how Beijing handles this latest leak by the Guangdong subsidiary. NOTE: Guangdong/Canton is China’s most populous region with over 150 million people.

CBN reports that China Unicom employees have been training on thenew model iPhone for China Unicom and it will be ready for launch in September. CBN also claims that Carrefour (134 superstores in China) will be a key iPhone distribution partner in China.

Marbridge Consulting reports that the new model iPhone for China was spotted by reporters attending the signing ceremony for China Unicom’s agreement with Carrefour. The new iPhone was apparently on hand as one of several 3G handsets that will be sold for China Unicom through Carrefour superstores.

Another source for the story, Yu Zaonan, a manager in Guangdong Unicom’s individual client department, stated that the iPhone will be priced at 2,400 CNY (USD $351) for an 8GB iPhone and 4,800 CNY ($702) for the 16GB model. Zaonan qualified his comments to CBN by stating that this plan was contingent on the formal signing of the deal by Apple and China Unicom in Beijing.

With Greg Joswiak’s (Apple VP for iPhone Product Marketing) very recent trip to China, it appears that the “iPhone in China” deal may soon become more than just a hot rumor. 5 million iPhones will be, by far, Apple’s largest single iPhone package sale.

Nothing is certain but change. China has made the 2008 Beijing Summer Olympic Games a deadline for launch of their new 3G network. While the Olympic flame burns brightly over the Beijing skyline, China Mobile engineers may be hard at work debugging a system that has yet to prove its Olympic mettle. Frustration continues to grow with the 3G trials and there are signs that the nascent TD-SCDMA protocol may fade out like the Olympic flame at a closing ceremony. The story of the day, however, is change, and change brings many opportunities. Here is what may soon transpire in the Chinese telecommunications industry (with emphasis on the word “may”) …

·China Telecom may be acquiring Unicom’s CDMA mobile business

·China Nation/Sate may level the playing field and foster direct competition in mobile

·China Telecom and China Mobile may battle over rights to W-CDMA 3G license and network

While it may not be immediately apparent, all of the above will have implications for Apple in the “iPhone in China” negotiations (more detail below).

The headlines above are all outlined in a January 29, 2008 article published in Interfax China > China Mobile pessimistic about TD-SCDMA and in China Trade Information.The article implies that most TD-SCDMA problems are with the special test handsets built to support the new network … but the problems are apparently deeper and may be inherent with the TD-SCDMA network itself.The article also offers insights into China Telecom’s move into mobile and development of W-CDMA.Can you say “competition?!”… See>HERE

EXCERPT:China Mobile is pessimistic about the development of TD-SCDMA, China’s homegrown 3G standard, because of handset problems and the relative strength of other standards, an industry insider said today. The source also said that operators are already preparing to compete over who will develop a network for W-CDMA, the European 3G standard, after the TD-SCDMA network is in place. “Inside China Mobile, most people are actually not optimistic [about TD-SCDMA development],” the source, who wished to remain anonymous, told Interfax. The source said that China Mobile is working to ensure TD-SCDMA is ready in time for the Olympics in August, despite problems with the network and with handsets.

“China Mobile employees have been using TD-SCDMA handsets since November 2007 for testing purposes. They can use some 3G functions, such as video telephone and high-speed download. However, due to quality problems with TD-SCDMA handsets, the results of the trials have not been good,”…“However, even though there are many problems, the TD-SCDMA network will be put into use before the Olympics.”

The source said that TD-SCDMA handsets are encountering difficulties. “One reason [China Mobile is pessimistic about TD-SCDMA] is that TD-SCDMA handsets, which are produced in China, have serious problems.” The source added that the earliest that phone numbers for TD-SCDMA handsets will be released to the general public will be in May of this year.Compared with handsets supporting the W-CDMA network, TD-SCDMA handsets are much weaker in both quantity and quality, the source said.

As the headline implies, China’s “still in gestation” Time Division Synchronous Code Division Multiple Access (TD-SCDMA) 3G protocol may not live long after birth.Why should iPhone fans care? Continual “issues” with TD-SCDMA may alter Apple’s next generation iPhone chipset development plans. The sub-headlines also have ramifications for Apple.If the rumors prove true, China Telecom may indeed be acquiring China Unicom’s CDMA mobile business (Unicom’s GSM division may be acquired by China Netcom). China Telecom will then be in the wireless business with CDMA (not related to CDMA2000) and will be granted a 3G license. iPhonAsia sources in Beijing have suggested that China Telecom will obtain W-CDMA 3G license.Update 5/29/08: iPhonAsia has reviewed numerous current reports which indicate that the newly formed China Uniom/Netcom will receive a W-CDMA 3G license when restructuring dust has settled (in 3 to 18 mos). If this proves true, China Unicom may become an alternative to China Mobile as a partner for Apple (iPhone) in China. It may also be possible for Apple to work with both carriers.

Note also the just announced 5/29/08 iPhone deal in Hong Kong and Macau with Hutchison Telecom Intl. Ltd. Hutchison runs a W-CDMA network in Macau.

The Jan 29 article (noting problems with TD-SCDMA) is based on information provided by an anonymous source, yet the piece is authoritative and was published by Interfax China and China Trade Information. This leaked news also reinforces information that iPhone in Asia was provided by a separate telecom source in China.It begs the question why this information would make its way into the public’s eye?This is potentially embarrassing for China Mobile and China Nation State.For several years now China has staked substantial national interest and billions of dollars (an estimated US $4 billion has been spent on infrastructure alone) into development of TD-SCDMA, a “China built” 3G mobile communications network.

China may have seen the TD-SCDMA problems coming months ago, as they took steps to ensure that multiple 3G networks could run in combination to support China’s existing mobile subscriber base. It appears that China is becoming more favorable to “technology neutral” standards in 3G.This move toward “neutrality” could give 3G alternatives a fighting chance and if problems persist, TD-SCDMA may fade into the background. W-CDMA is a mature 3G standard, widely used in Europe, and will allow many foreigners to use their “W-CDMA ready” handsets while in China.

This story changes the complexion of the iPhone “negotiations or not” drama, and it explains why Apple has not rushed to Beijing to engage in ‘immediate’ iPhone discussions.I believe Apple has known about the telecom restructuring and “TD” issues for many months.It may be why Apple has elected to begin serious discussions with other Pacific Rim nations ahead of the world’s largest mobile market.Apple might be better off to wait patiently while internal China telecom issues are digested and more clearly defined.

When the restructuring dust settles (later this summer), don’t be too surprised to hear about a multi-carrier deal – … follow the W-CDMA 3G … China Mobile and China Telecom IMHO will both win rights to run that protocol.

Why might Apple work with both carriers? Exclusivity may need to fly out the window in China. Apple will need China Mobile’s established EDGE/GPRS to offer the widest coverage while the W-CDMA network is in build phase (a one to two year project). NOTE: the next gen iPhone will very likely be backward compatible with EDGE/GPRS.

To build TD-SCDMA into iPhone or not?

China may take some time to issue W-CDMA and CDMA2000 3G licenses and they have yet abandon hope that TD-SCDMA will be technologically viable.But “unstable” and “does not operate well in cities” (tall building interference) does not sound too promising after so much work as gone into TD-SCDMA. Therefore, it is probable that Apple would resist any suggestion to work with their chip partners and build (design, refine and test) a sophisticated mobile chipset that supports TD-SCDMA.

The good news for Apple is that there are many nations who are anxious to get their hands on iPhone and a Pacific Rim launch sans China should be more than enough to get Apple to their 10 million iPhones in 2008 goal. Given China’s current focus on restructuring, my bet is that Apple will move with the rest of the Pacific Rim(SingTel, NTT DoCoMo, Optus, et. al.) before getting serious with China.

China will always be there with their 500 million and growing mobile handset users and there’s a good bet tens of thousands of next gen iPhones will make their way into China in 2008 … and many millions more thereafter.

Singapore Telecommunications (SingTel) may be using its holdings and control of regional telecom companies to win a contract with Apple and coordinate a multi-nation Apple iPhone launch.The launch could involve seven different carriers in as many nations and bring iPhone to a subscriber base of 136 million. Apple conveniently has a major campus in Singapore.

The Thai Daily, Bangkok Post and Australian IT are reporting that Singapore Telecommunications (SingTel) is in talks with Apple on a coordinated iPhone distribution plan throughout the Pacific Rim. SingTel is in a position to aid with logistics and planning.Australia’s Optus is a wholly owned subsidiary of SingTel and the Singapore carrier has significant holdings in telecom companies throughout the region.SingTel website reports the group’s major telecom investments include:

vAIS in Thailand (21% owned by SingTel)

vOptus in Australia (wholly owned by SingTel)

vBharti Telecom Group in India

vGlobe Telecom in the Philippines

vPacific Bangladesh Telecom (PBTL) in Bangladesh

vTelkomsel in Indonesia

vWarid Telecom in Pakistan

In combination, the companies above have more than 136 million mobile customers.This is the largest mobile customer base in Asia outside of China.

CNBC’s Jim Goldman just concluded a post MacWorld Keynote interview with Steve Jobs.Goldman asked Jobs about the reported “end to talks” with China Mobile. According to Goldman, Steve Jobs said there were no such ongoing negotiations. He noted that there has been only one China Mobile representative that has visited Apple’s Cupertino HQ and that meeting took place months ago.

My guess … There have been some preliminary chats but “negotiations” (serious back and forth over a contract) have yet to happen.

AT&T made an iPhone deal with Apple without the benefit of dissecting the product. They put their faith in Apple and were rewarded. China Mobile may not take this approach. China (Nation/State) and China Mobile have made their new 3G (TD-SCDMA) network a priority (albeit a full-scale TD-SCDMA launch will likely be deferred until 2009). China Mobile will demand that the new iPhone support their new 3G network. And China Mobile may want “hands on” testing time with the new 3G iPhone before they hold serious contract talks. Apple almost certainly has the new 3G model under lock-in-key in Cupertino. While the new model may be relatively refined, Apple may not be ready to let China Mobile engineers run network tests with their new “oh so gorgeous” baby … just yet.

There is clearly more to this story so stay tuned. The Goldman video interview should be queued up later today and we’ll hear directly from Steve Jobs.

Update 1:

Paraphrasing Jim Goldman’s interview with Steve Jobs …

Regarding China Mobile

Steve Jobs: “It’s very strange … we’ve met once with one of their representatives.There have never been any ‘hot and heavy’ discussions either ‘on’ or ‘off’ … someone is just making this stuff up.”

Call me an optimist (guilty) and Apple fanboy (yep) … but I don’t believe for a second that the last round of “talks ended” statements by China Mobile means the negotiations have actually ended.In fact, they may have only just begun in earnest.Like a lovers quarrel, sometimes the stinging words have to let fly before the serious communications can begin.

Apple:“You want “on contract” customers who use massive amounts of data … Get back when you’re serious!”

So “talks have ended!”… I think NOT!The lovers are taking a time out … Deep down they want and need each other.

Okay serious business … The team of Financial Times UK reporters based in China have done a better job than most at getting the story right.Words matter!Negotiations have “temporarily stopped” does not mean – “It’s over!”And declining to say whether discussions will resume does not mean “don’t let the door hit you on the way out!” In fact Gao Nianshu, general manager of China Mobile’s Data Dept indicated that “contacts” (with Apple) continue.

With MacWorld Keynote almost here (tomorrow – January 15) and Q1 2008 Apple [AAPL] quarterly earnings report soon (January 22) … expectations are high for iPhone sales.My Take … iPhone is a superb smart-phone and its future is white hot bright; yet it would be prudent to set realistic iPhone sales expectations in 2008.

Gene Munster – Analyst at Piper Jaffary:

As for the iPhone, Munster expects sales essentially in line with Wall Street expectations.“The iPhone is still in startup mode, so ’08 is more of a foundational year for the product than it is a growth year. We believe it is more important that the iPhone product line progresses in ’08 (with feature improvements and price decreases) than it is for the iPhone to see significant unit growth,” ……. “We anticipate more substantial unit growth in ’09.”

A rumor (9 to 5 Mac story) swirling through Blogosphere, speculates that Apple will announce 5 million iPhones sold at MacWorld 2008. If sales to Euro carriers (for inventory) are treated as “sold,” then this should give iPhone sales a boost. Regardless, I am not expecting more than 3.7 million iPhones sold by MacWorld.If the “9 to 5 Mac” story proves true (unlikely in my opinion), then it will be a second New Years celebration for AAPL shareholders. I’m not trying to throw a pail of cold water on this “5 million already sold” notion; however, it pays to be cautious (suspicious) over un-sourced stories.

FWIW … here is the comment I posted on 9 to 5 Mac’s site.

Submitted by idannyb (not verified) on Sat, 12/22/2007 – 22:47.

At the end of fiscal 4th Qtr 2007 Apple had sold 1.39 million iPhones. I believe Gene Munster has estimated that Apple will sell appx. 2 million iPhones in both Q1 and Q2 of fiscal 2008 … this would track to approximately 3.7 million iPhones sold by MacWorld Expo 2008.Therefore, I’d say that 5 million is very much on the optimistic side. If Apple does in fact achieve 5 million iPhones sold by MacWorld, then it’s Katie bar the door! AAPL will smash through 200 pps.